White collar workers must decide on buyout
The nation's largest buyout deal wraps up Friday. It impacts GM white collar retirees, including thousands right here in Michigan.
Accoring to the Detroit News, about 42 thousand non union reirees are impacted. Those who retired between Oct. 1, 1997, and Dec. 1, 2011, face a choice between accepting a lump-sum buyout that for many workers is well over half a million dollars, or receiving their current monthly pension payment from an annuity issued by Prudential Insurance Co. By the end of the year, GM plans to close its pension plan and remove the $26 billion liability from its balance sheet, in a move to boost the carmaker's financial standing.
David Kudla, CEO and chief investment strategist of Mainstay Capital Management in Grand Blanc, estimates his firm has close to a thousand clients facing the decision, and has fielded calls or presented briefings to thousands of pensioners since GM announced the buyouts at the start of last month.
"We've been busy little bees since June," Kudla said.
So have GM retirees, who must weigh tax questions, investment options, future inflation rates and even their own mortality. Some resent GM dropping the pension plan and putting the burden of choosing an alternative on them.
In June, some retirees urged the General Motors Retirees Association to organize a boycott of GM cars and trucks.
Kevin Hogle, a 59-year-old Holly resident, worked 31 years at GM, ending his career as a Powertrain engineer in Pontiac. His wife put in 40 years. Both got offers to continue their monthly benefit, but having it paid from a Prudential annuity or to receive a lump-sum settlement of about $450,000 for him, and more than $500,000 for her.
It sounds like a lot of money, but with inflation and a family history of longevity, it doesn't look like the right move to him.
"It doesn't look like anything we're interested in," Hogle said. "When you do the projections on the payout, you'd have to be very aggressive in your investments to do well enough, unless you're going to die in 10 years. My in-laws lived to be 85 to 90-something. If you live that long, you're lucky, but that's 30 years, so you better do some good investing."
Financial planners are worried that some retirees will take lump sums and put them into investments that aren't appropriate. Kudla, of Mainstay Capital, says one client came in with an offer for a deferred annuity that carried annual fees that would take 4.17 percent of the money. Other advisers hear from clients who want to pay off debt, help out children or grandchildren or invest the money in a business.
"We're seeing way too many sleazy gimmicks that are being packaged up to look like a good deal," Kudla told the Detroit News.
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